Handle pension liberalisation carefullyUganda runs a monopoly state-controlled pension scheme, the National Social Security Fund (NSSF), which has, in the recent past, been plagued by financial scandals and inefficiencies. As such, many contributors do not see pension as an investment, but a ‘tax’ burden. This is further compounded by the fact that most pensioners, owing to Uganda’s low life expectancy, never live to put their pension to constructive use. The NSSF interest rate dropped from 14% to 3%, which is way below the current inflation rate of 14%. Over the past few years, the Government has continuously raised our hopes over the forthcoming liberalisation of the pension sector. This was further cited in the finance ministers budget speech of 2009/10. I am quite sure a majority of the members leapt for joy on hearing that the long awaited pension Bill had finally been tabled before Parliament. This was one of those days when I thanked God for the most recent NSSF scandal that I believe awakened Ugandans, towards lobbying for liberalisation of the pension sector. Most of us are eagerly anticipating the passing of the Bill in Parliament because we definitely foresee a number of future benefits resulting from cut throat competition among the various private players in the market. Private pension funds have been known to offer better services like providing indexed link products to protect pensioners money from inflation, shorter lead times taken for pay-outs, lifelong monthly payments, ease of access to pension funds by dependants, access to mortgages using pension funds and better interest rates. There is also need for transparency and accountability of the investment funds by the regulatory bodies thus offering more attractive retirement packages, with a better return on savings. I, however, believe that there are two sides to every story. Many of us have not stopped to think about what negative impact liberalisation could have on our society. The proposal of a regulatory body that will oversee all the private players is no guarantee of safe custody and growth of all our savings with the various pension funds. Allow me to take you back to the time of the collapse of large banks in Kampala. These banks were regulated by Bank of Uganda, but still collapsed. We need to note that without a proper and smooth transition of the NSSF fund from monopoly to liberalisation, investments which are underway could lead to liquidation of the fund, thus placing our hard earned savings at huge risk. For example, if the Bill is passed, and the NSSF fund is depleted by those that choose to invest in other private schemes, the pension scheme might not have enough funds to finance those investments that are still in the pipeline, which could create a liquidity issue for NSSF. This might not lead to a win-win situation for all players. Hopefully the Bill shall be debated taking into consideration all pros and cons, to ensure that it places the common man’s interests at heart. I hope the minister, in her upcoming budget speech, sheds some light on the progress of this proposed Bill. The writer is a senior tax adviser

NEW VISION Uganda
Uganda runs a monopoly state-controlled pension scheme, the National Social Security Fund (NSSF), which has, in the recent past, been plagued by financial scandals and inefficiencies.

As such, many contributors do not see pension as an investment, but a ‘tax’ burden. This is further compounded by the fact that most pensioners, owing to Uganda’s low life expectancy, never live to put their pension to constructive use.

The NSSF interest rate dropped from 14% to 3%, which is way below the current inflation rate of 14%. Over the past few years, the Government has continuously raised our hopes over the forthcoming liberalisation of the pension sector.

This was further cited in the finance ministers budget speech of 2009/10.

I am quite sure a majority of the members leapt for joy on hearing that the long awaited pension Bill had finally been tabled before Parliament. This was one of those days when I thanked God for the most recent NSSF scandal that I believe awakened Ugandans, towards lobbying for liberalisation of the pension sector.

Most of us are eagerly anticipating the passing of the Bill in Parliament because we definitely foresee a number of future benefits resulting from cut throat competition among the various private players in the market.

Private pension funds have been known to offer better services like providing indexed link products to protect pensioners money from inflation, shorter lead times taken for pay-outs, lifelong monthly payments, ease of access to pension funds by dependants, access to mortgages using pension funds and better interest rates.

There is also need for transparency and accountability of the investment funds by the regulatory bodies thus offering more attractive retirement packages, with a better return on savings.

I, however, believe that there are two sides to every story. Many of us have not stopped to think about what negative impact liberalisation could have on our society. The proposal of a regulatory body that will oversee all the private players is no guarantee of safe custody and growth of all our savings with the various pension funds. Allow me to take you back to the time of the collapse of large banks in Kampala.

These banks were regulated by Bank of Uganda, but still collapsed.
We need to note that without a proper and smooth transition of the NSSF fund from monopoly to liberalisation, investments which are underway could lead to liquidation of the fund, thus placing our hard earned savings at huge risk.

For example, if the Bill is passed, and the NSSF fund is depleted by those that choose to invest in other private schemes, the pension scheme might not have enough funds to finance those investments that are still in the pipeline, which could create a liquidity issue for NSSF.

This might not lead to a win-win situation for all players.
Hopefully the Bill shall be debated taking into consideration all pros and cons, to ensure that it places the common man’s interests at heart. I hope the minister, in her upcoming budget speech, sheds some light on the progress of this proposed Bill.
The writer is a senior tax adviser